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Daily Tax Report: State

Stimulus Legislation • Employee Relief Funds • Economic Nexus

April 5, 2020, 2:01 PM

This is a weekend roundup of Bloomberg Tax Insights, which are written by practitioners, featuring expert analysis on current issues in tax practice and policy. The articles featured here represent just a handful of the many Insights published each week. For a full archive of articles, browse by jurisdiction at Daily Tax Report, Daily Tax Report: State, and Daily Tax Report: International.

This week we look at the stimulus legislation enacted last week; tax-exempt employee disaster relief funds; economic nexus beyond sales and use taxes; continuing audits; China’s recovery; increasing automated digital services taxes; the importance of the arm’s-length principle; the government procurement tax; and the Spanish dividend withholding tax. We’ll hear from:

  • Dan Morgan of Blank Rome on the stimulus legislation to mitigate the Covid-19 economic impact
  • Richard Fox and Joshua Headley of Buchanan Ingersoll & Rooney on employee relief funds to provide tax-free assistance
  • Aleksandra Sterina, James Thomas, and Mackenzie Hager of Ernst & Young on economic nexus and flow-through income
  • Paul DiSangro, Brian Kittle, and Maria Critelli of Mayer Brown on managing audits, appeals, and litigation
  • Glenn DeSouza of Dentons on transfer pricing in China’s economic recovery
  • Jeff VanderWolk of Squire Patton Boggs on the dubious policy of increasing automated digital services taxes during a recession
  • Baker McKenzie attorneys on applying the arm’s-length principle during an economic crisis
  • Alan Lederman of Gunster, Yoakley & Stewart on the potential effect of the U.S. procurement tax if the U.S. withdraws from the WTO
  • Eduardo Martínez-Matosas and Luis Cuesta Cuesta of Gómez-Acebo & Pombo on the Spanish dividend withholding tax refund
Streets and sidewalks are empty in New York’s Times Square on March 30 as the city tries to control the spread of the coronavirus.
Photographer: Michael Nagle/Bloomberg

President Donald Trump signed the largest stimulus package in U.S. history on March 27, which includes access to retirement funds without the additional tax that would otherwise apply to early distributions. Dan Morgan of Blank Rome summarizes and explains the provisions for coronavirus-related distributions, relief for retirement plan loans, and waiver of 2020 required minimum distributions. Read: Stimulus Legislation Allows Access To Retirement Funds To Mitigate Covid-19 Financial Impact

A few weeks ago Morgan also wrote about planning and operational concerns regarding 401(k) plans for employers facing furloughs and layoffs.

Employers can establish employee relief funds under tax code Section 501(c)(3) to provide tax-free financial assistance to employees affected by the Covid-19 crisis. Richard Fox and Joshua Headley of Buchanan Ingersoll & Rooney explain how these funds can be established and administered. Read: Using Employee Relief Funds to Provide Tax-Free Assistance

The U.S. Supreme Court’s decision in South Dakota v. Wayfair Inc. had a big impact on sales and use taxes, but the effect of the decision on state net income and franchise taxes remains uncertain. Aleksandra Sterina, James Thomas, and Mackenzie Hager of Ernst & Young look at whether states will seek to use economic nexus to tax flow-through income. Read: The ‘Wayfair’ (or not) Impact on Partnerships

While much normal activity has ceased due to the Covid-19 pandemic, and deadlines to file and pay taxes have been extended, the IRS is continuing to audit taxpayers. Paul DiSangro, Brian Kittle, and Maria Critelli of Mayer Brown outline 10 action items to help tax professionals manage tax controversies while working under a lockdown. Read: 10 Actions for Managing IRS Audits, Appeals, and Litigation Under Covid-19

Should the Covid-19 pandemic be used to invoke force majeure and amend transfer pricing policies? Glenn DeSouza addresses this question with cases and solutions based on the latest Chinese legal, accounting, and economic developments. Read: Transfer Pricing in a Pandemic—Lessons From China

Most people with a desk job are now working from home and remaining productive through use of the Internet, and doing so without any additional expense. Jeff VanderWolk of Squire Patton Boggs questions whether it makes sense for the OECD to pursue increased taxes on automated digital services businesses in the near future when those services will be key to a global economic recovery. Read: Does It Make Sense to Impose Higher Taxes on Automated Digital Services?

Economies and markets have been hit by the Covid-19 outbreak, and businesses are contingency planning to ensure their operations continue. Baker McKenzie attorneys provide practical guidance for applying the arm’s-length principle during the economic crisis in Part 1 of a seven-part series. Read: OECD Transfer Pricing Guidelines—A Practical Guide for Applying the Arm’s-Length Principle During an Economic Crisis

The contemplated U.S. withdrawal from the World Trade Organization Government Procurement Agreement, and the entry into force of the USMCA, could cause some German, Japanese, Canadian, and Danish-originating goods and services to be subject to U.S. withholding tax under tax code Section 5000C. Alan Lederman of Gunster, Yoakley & Stewart explains why. Read: Would the IRS Procurement Tax Bring Former WTO-GPA Countries into Free Trade Agreements?

Eduardo Martínez-Matosas and Luis Cuesta Cuesta of Gómez-Acebo & Pombo analyze the Spanish Supreme Court judgment that ruled in favor of a claim for refund of Spanish dividend withholding tax made by a U.S. regulated investment company, under the EU freedom of movement of capitals. Read: Spanish Supreme Court Rules in Favor of Spanish Dividend Withholding Tax Refund

From the Archive

Bloomberg Tax contributors have been analyzing the U.S. Supreme Court’s decision in Wayfair from the day it was released and contemplating its potential effect.

Recent U.S. Supreme Court rulings may help reassure taxpayers that the due process clause of the U.S. Constitution continues to limit states’ taxing authority. Nikki Bossert, Marianne Evans, Shirley Sicilian, and Tracy Stone of KPMG LLP reviewed the due process nexus requirement as it currently exists, considerations for determining tax filing responsibilities, and potential challenges to some nexus assertions by states.

Derek Rose and John Barrie of Bryan Cave Leighton Paisner LLP went through the unanswered questions and open issues as states rush to enact sales tax legislation based on economic nexus.

The U.S. Supreme Court ruled in Kaestner that a state can’t tax the income of an out-of-state trust based on the residence of a beneficiary in the state. Heidi Schwartz and Joseph Bright of Cozen O’Connor explained what it means for states’ attempts to tax out-of-state trusts going forward.

Beyond Tax

What’s happening outside the world of tax?

Courts are postponing hearings due to Covid-19, and litigators are adapting to social distancing and working remotely. In Part 1 of a two-part series on “Tele-Advocacy,” KoonsFuller’s Sally Pretorius and Elizabeth Lippy, founder of Trial Advocacy Consulting & Training LLC, look at the remote tools available to attorneys communicating with courts. Read: Attorneys Need ‘Tele-Advocacy’ Tools as Courts Adapt to Coronavirus

The CARES Act allows employees impacted by the coronavirus to make early withdrawals from their retirement accounts without penalties. Hall Benefits Law attorneys examine the act’s relief and give recommendations for retirement plan fiduciaries. Read: Who CARES? Retirement Plan Withdrawals OK if You’re Impacted by Coronavirus

State and local “stay-at-home” orders and quarantines have businesses seeking guidance on whether they provide “essential” services. Squire Patton Boggs attorneys say those that operate across states and municipalities face an even more difficult task of complying with incongruous orders. Read: Businesses Face Tough ‘Essential Services’ Questions in Pandemic

The right of Americans to travel interstate in the U.S. has never been substantially judicially questioned or limited, until the new coronavirus pandemic, says Meryl Justin Chertoff, executive director of the Georgetown Project on State and Local Government Policy and Law. She says civil rights groups need to step up. Read: Coronavirus Threatens Constitutionally Protected Freedom of Movement

AI can pose a number of challenges in cases when it is relevant to a claim or defense of a civil action and falls within the scope of discovery. Dentons’ Ronald J. Hedges and attorney Gail L. Gottehrer pose questions about discovery issues based on a recent Michigan Court of Appeals ruling. Read: ‘Discovering’ Artificial Intelligence

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The domestic asset-protection trust raises intriguing federal income- and transfer-tax issues. Richard W. Nenno of Wilmington Trust Co. attempts to gather relevant authorities to guide the practitioner in analyzing these issues.

Bloomberg Tax Insights articles are written by experienced practitioners, academics, and policy experts discussing developments and current issues in taxation. To contribute please contact Erin McManus at emcmanus@bloombergtax.com.

To contact the reporter on this story: Erin McManus in Washington at emcmanus@bloombergtax.com

To contact the editors responsible for this story: Rachael Daigle at rdaigle@bloombergtax.com; Sony Kassam at skassam1@bloombergtax.com

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